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New Overtime Rules Big Deal for HR

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

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ORLANDO, FLA.—New regulations defining the Fair Labor Standards Act’s (FLSA) “white-collar” overtime exemptions should be in place by 2016, Tammy D. McCutchen, former administrator of the U.S. Department of Labor’s Wage and Hour Division (WHD), told attendees at a 7 a.m. concurrent session June 23, 2014, aptly titled “It’s 7 a.m.: Do You Know Where Your Overtime Is Headed?”

This is a “big deal” for HR, said Michael Lotito, SPHR. Lotito was the session’s co-presenter at the Society for Human Resource Management’s Annual Conference & Exposition and an attorney in law firm Littler’s San Francisco office. HR professionals should start paying attention now and preparing for important changes that are coming, he said.

Changes Not Expected

On March 13, 2014, President Barack Obama directed U.S. Secretary of Labor Thomas E. Perez to “modernize and streamline” the white-collar regulations, which define the scope of the executive, administrative, professional, outside sales and computer exemptions under the FLSA.

“This surprised everyone,” said McCutchen, who is an attorney in Littler’s Washington, D.C., office. “No one had any idea they were going to do this.”

McCutchen served as the WHD administrator in 2004, when the white-collar rules were last changed, and offered an insider’s perspective as to what HR and employers could expect this time around.

The Department of Labor (DOL) is holding “listening sessions,” where industry representatives can speak with Perez and David Weil, the WHD administrator, and provide input as to how proposed changes would impact their businesses. The DOL has twice met with SHRM representatives, including Sunday at the Annual Conference.

There is, as of yet, no proposal on paper, McCutchen said. Based on her experience, she predicted that proposed regulations would likely come out in November 2014, followed by a comment period of three months.

The DOL will then look at the comments and make changes. The last time the regulations were changed, it “was 10 months from the proposed regulations to the final regulations,” McCutchen said, anticipating that the final regulations would come out in September 2015, with an effective date of Jan. 1, 2016.

Changes to Minimum Salary, Duties Test

McCutchen said that when she and Lotito attended one of the listening sessions, Perez seemed to have three areas of focus:

The current minimum salary level for white-collar exempt employees was set at $455 per week, or $23,000 per year, in 2004. It is likely that the DOL will tie any increase to inflation indexes, McCutchen said, “but we don’t know how high it will go.”

“If you have exempt employees who are paid $38,000 a year, and the new minimum goes above that, what will you do?’ Lotito asked. Let them become nonexempt? Raise all of their salaries? If you raise their salaries, don’t you also have to raise their managers’ salaries?

You should start planning now for employees whose salaries are “on the bubble,” McCutchen said.

As for making changes to the duties test, the DOL most likely will remove the “concurrent duties” section under the executive exemption test, which provides an exemption to managers even if they are simultaneously performing the same duties as their direct reports.

The current “primary duty” test does not require that an individual spend a specific percentage of time performing exempt work. McCutchen said there may be an attempt to replace the current test, which focuses on the quality of the work performed, “with a quantitative test similar to that in California wage and hour law, which requires an exempt manager to spend more than 50 percent of his or her time supervising employees.”

Lotito noted that the California rule “is a problem in California” and may even be a bigger problem elsewhere in the country.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.